Key Highlights

  • The measure was announced in the 2026–27 Budget as part of a push to make tax simpler for businesses.
  • On 11 September 2026, Treasurer Jim Chalmers released a package of exposure draft legislation that included measures to give taxpayers "flexibility to report and pay their Pay As You Go (PAYG) instalments monthly".
  • Tax Commissioner Rob Heferen previewed the idea at the CPA Australia Tax Forum on 20 August.
  • PAYG instalments are prepayments of the income tax a business or investor expects to owe for the year.

Small and medium businesses that pay PAYG instalments each quarter could switch to monthly payments worked out inside their accounting software from 1 July 2027, under a plan the federal government released as draft legislation on 11 September 2026. With Parliament sitting from 12 October and the first quarterly instalment of 2026–27 due on 28 October, here is how the proposed "Dynamic PAYG" system would differ from today's rules. It is not yet law.

What Has Actually Been Proposed

The measure was announced in the 2026–27 Budget as part of a push to make tax simpler for businesses. The ATO's tracker of tax law and policy changes lists "Dynamic Pay as you go instalments (PAYGI)" with a proposed start date of 1 July 2027.

On 11 September 2026, Treasurer Jim Chalmers released a package of exposure draft legislation that included measures to give taxpayers "flexibility to report and pay their Pay As You Go (PAYG) instalments monthly". The stated aim is to "better reflect real time business and investment activity".

Consultation on that package closed on 28 September. CPA Australia was among the groups that lodged submissions, including on the monthly instalments draft. As at 11 October, no bill had been introduced.

Tax Commissioner Rob Heferen previewed the idea at the CPA Australia Tax Forum on 20 August. Subject to legislation, small and medium businesses could opt in to report and pay instalments monthly, with the amount calculated by an ATO-approved formula built into their accounting software.

How PAYG Instalments Work Now

PAYG instalments are prepayments of the income tax a business or investor expects to owe for the year. Quarterly payers generally use one of two methods.

Those on the instalment amount method pay a figure the ATO works out from their most recent tax return, lifted by a GDP adjustment. For 2026–27 the ATO has set that adjustment at 5%, up from 4% in 2025–26.

Those on the instalment rate method apply a percentage to the business and investment income they earn in each quarter, so payments move with turnover rather than profit.

Either way, the result is an estimate. Built from last year's figures, or from income alone, it can drift a long way from the tax a business eventually owes. Taxpayers can vary their instalments, but a variation that proves too low can attract the general interest charge (GIC), currently 11.51% a year and not deductible for amounts incurred from 1 July 2025.

Hypothetical Example: Last Year's Profit, This Year's Bill

Hypothetical example: a consulting company uses the instalment amount method, and its most recent return showed tax of $40,000. Applying the 5% GDP adjustment, its instalments for the year come to $42,000, or $10,500 a quarter. This is simplified; the ATO's calculation is based on notional tax, which can differ from the tax actually assessed.

Now suppose a major client leaves and the company's profit for 2026–27 halves, so its actual tax for the year is $20,000. If it keeps paying the default instalments, it hands the ATO $42,000 across the year, $22,000 more than it owes, and waits until its return is assessed to get that money back.

The Interest-charge Shield in Draft PCG 2026/D3

The draft is to apply to pilot participants and to businesses that opt in from July 2027. Comments closed on 28 August 2026.